There is no indication Microsoft's board plans to comply with the investors' alleged wishes. But the news, first reported by Reuters, adds to recent reports of unease among the company's shareholders. It also calls into question whether investors have the patience to allow retiring CEO Steve Ballmer's ongoing "devices and services" transition to unfold.
In an email, Forrester analyst David Johnson said shareholder unrest is "normal" for a company that is both in transition and searching for a CEO. But he also said the newest report "reveals that there could be growing divides within the [Microsoft] board."
The relationship between Microsoft's board and its investors has been the subject of substantial commentary since Ballmer revealed in August that he would retire within the next year.
[ What do Microsoft's struggles mean for customers? Read Microsoft Observations From The Trenches. ]
Microsoft announced around the same time, for example, that activist hedge fund ValueAct will have the option to gain a seat on the company's board. ValueAct owned around a 1% stake in Microsoft at the time and, according to a Reuters report from July, opposed the company's move to make its own devices. Some speculated that ValueAct helped force Ballmer out -- claims that both Ballmer and other members of Microsoft's board have categorically denied.
Some have called for Gates to return as CEO, a possibility the co-founder has unambiguously dismissed, citing his commitments to philanthropic projects. Still, Gates remains involved as chairman, and is a member of the special committee that is currently searching for Ballmer's replacement. He is also Microsoft's largest individual shareholder, with 4.5% of the company's shares, though his stake will dwindle to nothing by 2018, thanks to pre-scheduled sell-offs.
The three investors cited in the newest report reportedly collectively represent 5% of Microsoft's outstanding shares and are allegedly concerned that Gates will keep the company on its current trajectory. Shareholders have long criticized Microsoft for being too stingy with profits -- a complaint has helped keep Microsoft's stock price static for roughly a decade, even though the company has been spectacularly profitable during that time. Some fear the ongoing reorg isn't likely to improve matters.
Microsoft has appeared sensitive to such concerns. The ValueAct deal suggests a willingness to seriously consider shareholder input, for example. Microsoft also recently increased its dividend 22% and announced a $40 billion buyback plan.
Still, investors have cause for skepticism. John W. Thompson, who heads the CEO selection committee, told The Wall Street Journal that Microsoft's reorg plan could take five to seven years. Only a company of Microsoft's financial stature could absorb the $900 million Surface write-down only to drop $7.2 billion on Nokia a short time later. But if those sorts of financial road bumps and major acquisition costs are going to typify the next several years, it's easy to see why investors are uneasy.
Though Gates is held in high esteem as one of the tech industry's visionaries and elder statesmen, he is also close with Ballmer, and has been criticized for steering Microsoft toward prioritizing existing revenue streams over new products.
"Gates has been a staunch advocate of preserving Microsoft's Windows and enterprise software franchise," Johnson noted, adding, "Gates was reported to be influential in Ballmer's decision to kill Microsoft's Courier tablet initiative -- a product that could possibly have averted the rise of the iPad."
Johnson suggested Microsoft shareholders might be concerned not only about how this conservative attitude has manifested in the past, but also how it is informing new strategies, such as when to release Office for iPad and Android tablets.
"Should Gates step down, the climate may be more favorable for changes thought to be inconceivable just a couple of years ago, but it's too early to say," Johnson stated. He said the investor drama doesn't yet mean anything for Microsoft's customers. He said the company remains strong, and that it wouldn't necessarily portend trouble if Gates were to step down.
"With Gates' other fantastic and critically important philanthropic activities, the company may be better served by another good leader who can give the board role their full attention," he said.
For now, Microsoft isn't the only large, successful tech company attracting attention from activist shareholders. Apple, which also been criticized for stockpiling cash instead of returning it to investors, recently attracted the attention of Carl Icahn, the billionaire who infamously, and unsuccessfully, battled Dell CEO Michael Dell's attempt to take the company private. Icahn believes Apple should buy back more of its own stock.